The U.S. Securities and Exchange Commission sued Silvergate Capital Corporation, pointing to transfers with FTX and accusing the crypto-friendly bank of making false statements to the public about its anti-money laundering procedures.

The crypto-friendly bank, which liquidated and shuttered its doors last year, was sued on Monday, according to a complaint filed by the SEC. The SEC also named the bank's CEO Alan Lane, former COO Kathleen Fraher and former CFO Antonio Martino.

Silvergate's Bank Secrecy Act and AML compliance program were inadequate, the SEC said. Specifically, the bank did not have appropriate measures to monitor the Silvergate Exchange Network, which allowed customers to transfer funds.

"But the Bank failed to adequately or automatically monitor for suspicious activity approximately $1 trillion in banking transactions that occurred on the SEN," the SEC said. "The Bank also failed to detect nearly $9 billion in suspicious transfers by FTX and its related entities."

Silvergate Capital, Lane and Fraher agreed to settle with the SEC, without admitting or denying the agency's allegations; Martino did not agree to settle. Silvergate agreed to pay $50 million in fines while Lane and Fraher agreed to pay $1 million and $250,000, respectively, and agreed to permanent injunctions, according to the SEC.

The Federal Reserve Board and the California Department of Financial Protection and Innovation also announced that it had settled charges, the SEC said.

“Rather than coming clean to investors about serious deficiencies in its compliance programs in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programs," said Gurbir Grewal, the SEC's director in the enforcement division, in a statement. "In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities."

Silvergate did not immediately respond to The Block's request for comment.

In late 2022, FTX filed for bankruptcy, which caused a run on customer's deposits at Silvergate. Silvergate later unraveled after posting in a regulatory filing that it may be "less than well-capitalized" and said it was "re-evulating its business." Shares quickly fell. Coinbase, Circle, Paxos and Gemini, among other companies, then severed ties with the bank.

SEN

The bank launched SEN in 2017, which allowed mostly crypto firms and investors to move U.S. dollars between major crypto trading firms.

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Later, Lane and Fraher found out the bank had "serious deficiencies" in its BSA/AML compliance program. SEN had not been "subject to automated monitory"  during a 15-month stretch from 2021 into 2022, the SEC said.

In a Form 10-K statement issued for the year 2021, the bank claimed it had "enhanced procedures" to monitor customers, which the SEC said was not true.

"Similarly, because more than $1 trillion dollars of SEN transactions were not subjected to automated monitoring for suspicious activity for a period of at least 15 months prior to the filing of the 10-Q, Silvergate was essentially not conducting adequate 'on-going monitoring of customer activities,'  nor did it employ 'system monitoring rules tailored to digital currency activities' that could “adequately screen and monitor [its] customers associated with the digital currency initiative for their compliance with anti-money laundering laws," the SEC said. 

FTX

The now-bankrupt crypto exchange had bank accounts at Silvergate and some of its entities had engaged in about $9 billion in suspicious transfers, according to the SEC's complaint.

The SEC said Silvergate was trying to buck speculation that FTX had used its account at Silvergate for its misconduct. Lane and Silvergate also provided false information to a group of U.S. senators who had sent a letter in December 2022 to the bank. Sens. Elizabeth Warren, D-Mass., John Kennedy, R-La., and Roger Marshall, R-Kan., asked the bank for information on its relationship to FTX.

"The information provided to the Senators in the Response to the Congressional Letter was false or misleading because, by this point, Lane knew or should have known that Silvergate did not have automated monitoring of SEN transactions for a period of at least 15 months from April 2021 until September 2022, and, specifically with regard to FTX, that the BSA staff did not detect in a timely fashion billions of dollars in suspicious transactions," the SEC said.

Updated at 8:45 p.m. UTC on July 1 to include settlement details

Updated at 9:10 UTC on July 1 to include details throughout